Government Contractor Entitled to GST Reimbursement for Post-GST Contracts; Denial Based on Pre-GST Guidelines Misconstrued
Issue:
Whether a government contractor is entitled to reimbursement of additional GST paid on contracts executed after July 1, 2017, and whether the respondent authorities can deny such reimbursement by misconstruing the applicability of a notification intended for pre-GST contracts.
Facts:
For the period July 1, 2017, to March 31, 2019, the petitioner, a government contractor, had to pay GST on gross bills from their own pocket due to the change in the tax regime. The core of the assessee’s argument was that the respondent authorities had failed to correctly interpret and apply Guideline Notification No. 5050-F(Y), dated August 16, 2017, issued by the Finance Department (Audit Branch), Government of West Bengal. The assessee contended that paragraph 3(iv) of this notification, which the respondents were relying upon to deny reimbursement, was specifically confined to pre-GST contracts. They argued that contracts executed after July 1, 2017, were expressly governed by paragraph 4 of the very same notification, which provided for reimbursement of additional GST. The assessee further submitted that the denial of GST reimbursement by the respondent was arbitrary, unreasonable, and discriminatory, violating Article 14 of the Constitution.
Decision:
The court ruled in favor of the assessee. It held that the respondent authority had misconstrued the applicability of the Notification in the context of the instant case. The respondents had failed to appreciate that paragraph 3(iv) of the said notification was confined in its application to pre-GST contracts and could not be invoked to deny reimbursement for contracts executed after July 1, 2017, which are expressly governed by paragraph 4 of the same notification.
Accordingly, Respondent No. 4 (Secretary, Public Works Department) was directed to revisit the issue of the petitioner. Since the petitioner had already made payment of the GST amount against gross bills for the period 01.07.2017 to 31.03.2019 out of their own pocket, Respondent No. 4 was instructed to consider the issue of reimbursement of the GST component in light of Paragraph 4 of Notification No. 5050-F(Y) and to pass a reasoned order after giving an opportunity of hearing to the petitioner.
Key Takeaways:
- Correct Interpretation of Notifications: This case highlights the crucial need for tax and government authorities to correctly interpret and apply departmental notifications. Misinterpretation can lead to arbitrary denials of legitimate claims.
- Distinction Between Pre-GST and Post-GST Contracts: The judgment draws a clear distinction between contracts executed before and after the implementation of GST (July 1, 2017). Different paragraphs within the same notification applied to these distinct periods.
- Reimbursement of GST for Government Contracts: For government contracts, especially those entered into post-GST implementation, provisions for the reimbursement of GST (where the burden increases due to the regime change) are often made through specific clauses or notifications. These must be honored.
- Principle of Audi Alteram Partem (Opportunity of Hearing): Even when remanding the matter, the court emphasized the requirement for the respondent to provide an opportunity of hearing to the petitioner before passing a fresh reasoned order. This reinforces the principles of natural justice.
- Constitutional Mandate (Article 14): The assessee’s argument of arbitrary and discriminatory action violating Article 14 underscores the importance of fair and non-discriminatory application of government policies and notifications.
- In Favour of Assessee: The decision is a significant win for the assessee, directing the authorities to reconsider the reimbursement claim in the correct legal framework, likely leading to the recovery of the GST amounts paid from their own funds.